Financial Q&A: Does Your Brokerage Account Have Enough Insurance?

Financial Q&A: Does Your Brokerage Account Have Enough Insurance?

Article excerpt

Q: Brokerage houses insure street accounts to a $500,000 limit.
I have three accounts with the same firm - one in my name, one
jointly with my wife, and one in an IRA in my name. Is the limit
$500,000 on all three accounts, or $1.5 million?

B.H., via e-mail

A: The insurance you refer to comes from the Securities
Investor Protection Corp. and is commonly known as SIPC insurance.
The corporation was created in 1970 primarily to protect investors
from the insolvency or bankruptcy of a member broker-dealer (or
clearing firm) that holds assets for investors and to provide
coverage for "unauthorized trading" in a client account.

Michael Borato, a financial planner with Dawson Wealth Management
in Cleveland, says that the insurance covers registered securities
(most stocks, bonds, and mutual funds) and up to $100,000 in cash.
It does not cover unregistered investments such as fixed-annuity
contracts, hard commodities, commodity options, or futures
contracts. Nor, he points out, does it extend to market risk or the
volatility of any investment.

SIPC provides coverage of up to $500,000 per customer, per
registration. One customer can act in several capacities: as owner
of a single account, joint owner, Roth IRA owner, traditional IRA
owner, or trustee, among others. Each of those accounts would be
separately and fully covered up to $500,000. So if your accounts
included all registered securities and no more than $100,000 in cash
per account, Mr. …